Regulatory Updates

Gaming Related Contracts: Thoughts on the Proper Scope of NIGC Contract Review and Approval Authority

Elizabeth Homer
Elizabeth Homer

by Elizabeth Homer, Attorney at Law

No legal instrument is as common as the humble contract and none other so important in virtually every aspect of human relations. Like the humans who create them, every contract bears some similarity to all others, yet there is tremendous diversity in contracts and often great complexity. Similarly, contracts are capable of creating a lot of trouble, yet equally capable of ending disputes and fostering harmony.

Certainly, nothing is more elemental in trade and commerce than the contract. Eliminate the act of contracting and there can be no transaction. Eliminate transactions and there can be no trade or commerce or economic activity; there would be no economy.

Keenly aware of the potential harms of laws impinging upon commerce, the framers included Constitutional provisions reserving to the Congress authority to regulate commerce and an outright prohibition on the enactment of state laws impairing the obligations of contract. The Constitution,
however, does not frown on reasonable laws affecting or related to contracts; such laws are not only permissible, they may be desirable for many legitimate purposes. Contract laws produce certainty, promote fairness and uniformity, and advance important public policy objectives. Good contract laws accomplish such purposes without unnecessarily restricting freedom of contract or unduly burdening trade and commerce.

In coming weeks, Congress will be considering legislation to amend the Indian Gaming Regulatory Act, including the provisions related to the National Indian Gaming Commission's contract review authority. At issue is whether Congress should broaden the NIGC's authority to encompass additional types of gaming related contracts. Gaming management contracts have been subject to NIGC review and approval since enactment of IGRA in 1988, as a means of advancing several key policy objectives.

Of highest priority, the process is intended to prevent unsuitable persons from managing tribal gaming facilities. To advance this objective, NIGC was also delegated responsibility to conduct extensive background investigations, including criminal and financial histories. Next, the process is intended to ensure that Indian tribes are the primary beneficiaries of gaming revenues and to ensure that they retain the sole proprietary interest in tribal gaming operations. Finally, the process is intended to ensure that the terms of this type of contract are both fair to tribes and compliant with IGRA.

While these objectives are consistent with Congress' unique responsibilities to tribes, there is concern about how Congress will fashion legislation advancing these objectives without unduly intruding upon tribal sovereignty or undermining the tribal capacity to conduct business in the ordinary course. There is also the issue of NIGC's capacity to handle the workload. The NIGC management contract review process is often criticized, even internally, because it is very time consuming and resource intensive. At present, the NIGC acts on perhaps two or three management contracts annually in a process often consuming a year or more of effort. Although most accept Congress' determination that federal scrutiny is merited in this discrete type of contract, there is considerable concern about amending IGRA to broaden the categories of contracts subject to review.

Also, the statutory and regulatory terms and conditions requisite in a management contract are not appropriate to the vast majority of gaming related contracts, thus a change in IGRA would necessarily entail subsequent rulemaking over a six to twelve month timeframe, if not longer. Moreover, the existing remedy for non-compliance with federal contract review requirements is that such contract is void, hence unenforceable. Little is more likely to chill commerce in Indian Country than a change in law that operates to place contracts at risk of nullification, and this is of key concern to tribes.

In seeking the proper balance between these competing interests, IGRA itself suggests a solution. The Act requires tribally issued licenses for key employees and primary management officials as a means of advancing precisely the same policy objectives as those associated with management contract review. Cognizant of the obvious limitations on the capacity of the NIGC to process the vast number of such licenses or to perform the requisite number of background investigations, Congress instead left these functions to tribal gaming regulatory agencies, assigning the NIGC a much more limited, and thus more manageable, role in the process. Tribes review license applications, process them, and conduct the requisite background investigations while the NIGC serves as the vehicle through which fingerprint cards are run through the FBI's central criminal records data base.

Lawmakers should consider that considerable tribal resources are devoted to tribal gaming regulatory agencies. Tribal gaming regulatory agencies have developed the capacity to process license applications and conduct background investigations of all license applicants, including of key employees, primary management officials, and vendors. In fact, tribal gaming regulatory agencies routinely handle vendor licensing. With regard to compacted tribes conducting Class III gaming activities, the process is generally modeled on the NIGC's role with state agencies performing much the same function as the NIGC performs in relation to Class II gaming tribes.

While not all tribal gaming regulatory agencies routinely review the content of vendor contracts, the licensing and related background investigation functions are routine and the process serves to prevent unsuitable persons from conducting business with tribal gaming enterprises. Assuming that
Congress determines that legislation increasing the variety of contracts subject to content review is necessary or desirable, tribal contract review processes in combination with existing tribal vendor licensing mechanisms provide the most practical means for advancing the intended objectives.

Finally, not all contracts are equal and given the vast number and wide variety essential to the conduct of business in gaming, a blanket requirement for content review is neither reasonable nor practical. Given that tribal vendor licensing processes already address suitability concerns, the remaining concern primarily centers on specific terms and conditions. The difficulty is the subjectivity to which this type of analysis is prone. Even the simplest sales contract executed in strict conformity with the Uniform Commercial Code may be unfair or overreaching. Certainly, this potential isn't of sufficient concern to subject all such contracts to federal scrutiny in the context of gaming. Moreover, IGRA is concerned with tribal gaming, but it would hardly be reasonable to consider every kind of contract to which a tribal gaming enterprise is party a “gaming” contract. Practicalities dictate careful consideration of whether circumstances warrant additional federal intrusion into the business dealings of tribes in the first place, and only then the scope of such requirement, appropriate standards, and strict timeframes must be considered.

The old adage “time is money” became an old adage because there's truth in it. The business world moves swiftly and lost time produces lost revenue and lost opportunity. Transactional delays increase the cost of doing business, and reduce profit potential. Combine higher costs with reduced
profits and the result is bad business. Without question, federal review of tribal contracts reduces efficiencies, and more contracts subject to review will increase such inefficiencies, particularly if the entire burden falls on the NIGC. Naturally, proposals to amend IGRA create concerns, especially changes that significantly reduce efficiency or constrain business dealings. Thoughtful consideration of these issues will be essential as Congress deliberates on whether or how IGRA should to be amended.

Elizabeth Homer is a former Vice-chair of National Indian Gaming Commission as well as a former Justice Department prosecutor now engaged in the private practice of law in Washington, D.C. She can be reached by calling (202) 955-5601 or email ehomer@homerlaw.com